What is Paid up Capital in Malaysia

What is Paid-up Capital in Malaysia?

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Paid-up capital is defined as the sum of money paid to a company by its Shareholders for shares in the Company. It is also called contributed capital or paid in capital. Paid-up capital refers to the amount of money that a firm can spend on its operations, engage in investments for new projects, and settle debts

A company’s capital paid up is indicated on the balance sheet. It is determined through the multiplication of total shares issued by a company and the price per share. Share price is established by the board of directors, acting as an agent for the shareholders.

Paid-up capital can be raised in a number of ways, including:

  1. The sale of shares to new and existing shareholders.
  2. Issuing bonus shares to current shareholders;
  3. To raise the price of issued shares.

Importance of Paid-Up Capital

For various reasons, paid-up capital is significant. It gives a company the monetary capacity it requires to function and develop. It also aids in establishing credibility with creditors and suppliers for the company because it demonstrates that the firm has a solid financial base to support its operations.

Here are some examples of paid-up capital:

Another company sold 100,000 shares of RM5. The paid-up capital for the company would be RM500,000.

A company allots 10,000 bonus shares at RM1 per share to its existing shareholders. The company’s paid-up capital would rise to RM10,000.

The paid-up capital concept is essential for entrepreneurs and business owners to comprehend. It is an indicator of the financial capacity that a firm has access to, and it can be crucial in determining the success or failure of such a company.

What advantages does having paid-up capital bring?

The benefits of having sufficient paid-up capital are amongst others would allow a business to:

  1. File applications for licenses or other approvals related to particular business activities depending on the minimum paid-up capital requirements sanctioned by the licensing authority or approving entity.
  2. Bid for tender and projects that involve mandatory lower capital commitment.
  3. The firms should meet the requirements of being a trusted supplier and vendor to multinational firms that have minimum capital demands.
  4. satisfy the criteria set by banks to be eligible for credit services or other related financial products.

Then, what is Share Capital?

In Malaysia share capital defines the total amount of money that a firm can raise by selling its authorized shares, according to the shareholders in a members’ meeting. This capital can be subdivided into several types of shares such as ordinary shares, preference shares and deferred shares. 

  • Ordinary shares, which are the commonly used ones, provide shareholders with voting rights at annual general meetings and dividends. 
  • Preference shares could provide shareholders with a fixed dividend payment before any payments are made to ordinary shareholders.
  • Deferred shares might not have voting or dividend rights until certain conditions were met.

The minimum share capital requirement for companies in Malaysia is RM1. However, some company like foreign-owned firms, those in the manufacturing sector, franchise firms and construction concerns may require higher requirement.

What is the minimum paid-up capital requirement for company registration in Malaysia?

A paid-up capital of RM1 is enough to start a business in Malaysia. It’s important also to note that numerous government agencies, banks and other organizations usually assume that companies should have a bigger amount before they accept any loan applications, licenses, tenders or business activities.

As an example – 

  1. According to the Malaysian Immigration Department, foreign-owned companies are required to paid up capital at least of RM500,000 for visa application.
  2. Moreover, the WRT License is a requirement to DBKL for all foreign-owned businesses applying for business premise licenses. The minimum paid-up capital requirement, which enables a WRT license is RM1 million

As a general rule, we suggest an initial paid-up capital of RM1,000 for all new companies upon submission to SSM. It is due to the fact that banks would require at least RM1,000 of paid-up capital to open your bank account and therefore you can use this as ready capital. Alternatively, you can ask your company secretary or, alternatively, your lawyer/business advisors for the best figure of what is suitable for your business. This is for a number of Companies where at the point of incorporation, it indeed becomes very important to get it right because any applications which may influence operation on business.

What are the paid-up capital requirements for specific business types in Malaysia?

The following are some of the examples of paid-up capital requirements for certain types of business activities:

ManufacturingRM2,500,000 (unimpaired by losses)
E-WalletRM1,000,000 to RM5,000,000 (unimpaired by losses)
Money BrokerRM200,000
Fund ManagementRM2,000,000
Robo AdvisoryRM2,000,000
Investment AdviceRM500,000

What is the minimum paid-up capital required to cover initial expenses?

The total paid-up capital of the company should be sufficient to cover the upfront costs associated with startup, such as registration fees, office rents and salaries. This is important since the company cannot earn revenue until it starts its operations. However, the amount of paid-up capital needed to cover these upfront costs will depend on the nature of business and company size. For example, a start-up might need only several thousand ringgit while a large company will need hundreds of thousands or even millions of ringgit.

If organization does not have enough funds in its paid-up capital for initial expenditures, it may need to find extra sources of money from investors or loan givers. Nevertheless, this procedure may also be costly and time-consuming, so it is necessary to avoid this situation wherever possible.

As such it is important to:

  1. To be able to know how much capital you require for paid-up, develop a comprehensive budget on your start costs.
  2. have a contingency fund from your paid-up capital for leverage as your initial expenses are higher than anticipated.
  3. try using an annuity payment scheme for the cost of initial appropriation that will allow you to distribute cost over period.

Is it possible to pay the registered paid-up capital in installments over a period of time?

Yes, installments are permitted in Malaysia for registered paid-up capital. A company can have an arrangement with its share subscriber to distribute the fee on its paid-up capital over a period of time, usually ranging from 12 months to 36 months. This is convenient for companies that cannot front all the paid up capital they need.

It requires the Companies Commission of Malaysia (SSM) to approve then company first before a staggered payment plan can be formed. The SSM will evaluate the business plan and financial projections of the company to make sure that it is financially capable in fulfilling its responsibilities based on the payment schedule.

If the staggered payment plan has been approved by SSM, then the company can commence raising paid-up capital from shareholders. The shareholders will receive a payment schedule indicating the paid-up capital required that shareholders are to pay and the due dates.

What is the extent of shareholders’ liability for unpaid shares?

In Malaysia, shareholders are liable for the amount unpaid on their shares. This implies that where a company is wound up and does not have enough assets to settle its debts, shareholders may be made liable for the cost of their shares.

For a shareholder, liability is determined by only the amount of the unpaid shares. For instance, if a shareholder buys 100 shares with RM 1 par value per share but pays only RM50 for each share, the liability is at RM 50 per cent for fund of RM 5 thousands.

Although a shareholder leaves the company, they may still be liable for unpaid shares. This is because the liability of a shareholder for shares that are not paid falls at the time when those shares have been bought and remains until they have been fully covered up.

It is necessary to know about shareholder’s liability for failure to pay shares in a Malaysian company. You must make sure that you pay all dividends on your shares and keep an eye on the financial situation of the company to ensure that it can fulfill its obligations.

Is it possible for the Company to increase its Paid-Up Capital without physically transferring funds to the Company’s Bank Account?

In Malaysia, shareholders are liable for the amount unpaid on their shares. This implies that where a company is wound up and does not have enough assets to settle its debts, shareholders may be made liable for the cost of their shares.

For a shareholder, liability is determined by only the amount of the unpaid shares. For instance, if a shareholder buys 100 shares with RM 1 par value per share but pays only RM50 for each share, the liability is at RM 50 per cent for fund of RM 5 thousands.

Although a shareholder leaves the company, they may still be liable for unpaid shares. This is because the liability of a shareholder for shares that are not paid falls at the time when those shares have been bought and remains until they have been fully covered up.

It is necessary to know about shareholder’s liability for failure to pay shares in a Malaysian company. You must make sure that you pay all dividends on your shares and keep an eye on the financial situation of the company to ensure that it can fulfill its obligations.

What is Paid-up Capital in Malaysia

Is it possible for the shareholders to recover the paid-up capital?

The entitlements attached to shares issued to shareholders are reliant on the nature of rights connected with the shares. Consult your lawyer or Company Secretary if you are unclear.

In most cases, an Ordinary Shareholder cannot recover the contribution or injection except in a winding-up process. It would be until after the proceeds from wind up realized and distributed to shareholders that you may attempt to recover your contribution. In other words, any amount of capital invested in the company is practically considered non-recoverable. Paid-up capital is the asset of a company and retains its ownership.

What is the relationship between Paid-Up Capital and Shareholding among Shareholders?

Illustration A:

Assume that Shareholder A invests RM10,000 and Shareholder B injects RM50,0 00 to purchase Ordinary Units worth RM1. Consequently, the company will issue and allot the following shares:

Shareholder A: 10,000 units of ordinary shares

Shareholder B: 50,000 units of ordinary shares

After these injections, the total paid-up capital of the company would amount to RM60,000. It is obtained by simply adding up the contributions from Shareholder A and Shareholder B.

Illustration B:

As in the case above, Shareholder A contributes RM 10, 000 and Shareholder B contributes RM50,000 to subscribe for Ordinary Shares valued at RM5. As a result, the company will issue and allot the following shares:

Shareholder A: 2,000 units of ordinary shares

Shareholder B: 10,000 units of ordinary shares

While the price per share is different, the aggregate paid-up capital of RM60,000. 00 for the company remains stable. This is performed in terms of summing the contributions from both Shareholder A and Shareholder B, despite different prices for Ordinary Shares.

How to increase Paid-Up Capital in Malaysia with SSM (Company Commission Malaysia)?

Here are the steps for increasing your paid-up capital:

Step 1: Contact your Company Secretary to draft the required documents.

Step 2: Send the funds or an equivalent amount to the Company, and give your Company Secretary the documentation.

Step 3: Your Company Secretary will then submit the documents to the Companies Commission of Malaysia (SSM).

It is also important to note that consulting a lawyer before going ahead with the increase in paid-up capital is highly recommended. This is because such a decision can affect the shareholding percentage and voting rights, and you wouldn’t want to lose control over your company.

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